Written by Credit.com
Believe it or not, your credit doesn’t have to be stellar to get a mortgage. Many banks and lenders will extend a mortgage to applicants with at least a 640 credit score. However, not all lenders are created equal — and, even if you can score a home loan, bad credit is going to seriously cost you in interest.
What Credit Score Do I Need to Get a Mortgage in 2017?
There are two main types of mortgages: conventional and Federal Housing Administration, or FHA, loans.
Some lenders will offer conventional mortgages to consumers with a credit score of just 620. Other lenders will go even lower, but the process for getting that mortgage will be difficult and involve thorough explanations of your credit history.
For FHA loans, some lenders will go as low as 580, with just 3.5% in equity. However some folks can get a new mortgage or even do a cash-out refinance with a credit score as low as 550 — but there’s a catch. You’ll need at least a 10% equity position. This means you need 10% down when buying a home or 10% equity when refinancing.
Keep in mind, though, not all lenders will extend a mortgage to someone with a bad credit score — it has to do with their tolerance for risk. (From an underwriting perspective, poor credit indicates a higher risk of default.) The more risk a bank is willing to take on, the higher your chances of getting approved with a not-so-hot score.
Here are some things to keep in mind if you have a low credit score and are shopping for a mortgage.
1. It’s a Good Idea to Rebuild Your Credit
If you are looking to increase your credit score to have an easier time getting a mortgage, you’ll need to be able to clear the 620 mark to see any significant difference. Hitting that threshold (and beyond) will likely make better mortgage rates and terms available to you, plus keep you from going through the type of scrutiny a lower tier credit score bracket often requires. You can generally improve your credit score by disputing errors on your credit report, paying down high credit card balances and getting any delinquent accounts back in good standing.
2. Down Payment Assistance Will Be Hard to Come By
Down payment assistance programs are currently quite scarce. Beyond that, to be eligible for down-payment assistance, a borrower would typically need at least a 640 credit score. You can expect this across the board with most banks and lenders. It is reasonable to assume you are ineligible for assistance if your credit score is under 640.
3. Previous Short Sale, Bankruptcy or Foreclosure Are Subject to ‘Seasoning Periods’
If you have one of these items on your credit report, it’s going to impact your ability to get a mortgage. There’s typically a three-year waiting period — also known as a “seasoning period” — before you can qualify for a mortgage after you’ve been through a foreclosure or short sale. The waiting time after a bankruptcy is two years. Note: There are some loan programs that have shorter seasoning periods. For instance, VA loans can get approved at the two-year mark following a foreclosure.
4. Higher Debt-to-Income Ratios Make it Harder
It’s no secret that FHA loans allow debt-to-income ratios in excess of 54%. In order to be eligible for this type of financing, your credit score should be around 640 or higher. That’s not to say your credit score of 620, for example, will not work. It’s almost a guarantee, though, that if your credit score is less than 600 you’re going to have a difficult time getting a loan approved with a debt-to-income ratio exceeding 45%.
5. Cash-Out-Refinancing Is On the Table
This is a big one. If you already own your own home, you could use your equity to improve your credit. How? You could do a cash-out refinance with your home. This would allow you to pay off installment loans and credit cards, which often carry a significantly higher rate of interest than any home loan. Wrapping them into the payment could end up saving you significant money, and it’s still an option for borrowers with lower credit scores. (As I mentioned earlier, some lenders will do a cash-out refinance for borrowers with a credit score as low as 550, so long as they’re in a at least 10% equity position.) However, if this is something you’re considering, be sure to read the print and crunch the numbers to determine if you’ll come out ahead. Cash-out re-fis require you to pay closing costs and your bad credit might not merit a low enough interest rate to make this move worthwhile. You’ll also want to make sure the new monthly mortgage payment is something you can handle.
Remember, just because you can technically get a mortgage with bad credit, doesn’t mean it’s the best move for you. You may want to improve your standing, lower your debt-to-income ratio and bolster your down payment funds before hitting up the housing market. Still, it can be done and if you’re currently looking for a home loan, be sure to ask prospective lenders or mortgage brokers lots of questions to find the best deal you can get.
This article originally appeared on Credit.com, authored by Scott Sheldon.
Investing in real estate can be one of the quickest ways to making money. There are a handful of ways that people can start investing in real estate and many people take different paths depending on their job situation, financial history, credit score and so on. However, there are core principles that everyone who decides to invest in real estate should practice. Here are a few ways that you can start preparing for your first real estate investment.
Work on your credit score
Investing in real estate takes time, unless of course you are the heir to a hedge or trust fund. For the average person there are steps that need to be taken in order to be set up for the best possible outcome. When it comes to hard money loans, your credit score is not as important as it may be when applying for a traditional loan. Hard money lenders generally look at the value of a property and not the borrower’s finances or credit. With that said, paying off all of your debts and having a solid credit score will give you a leg up on the competition.
Successful investors know that saving money is critical when planning to make a big purchase. Having proof that you are a consistent saver will help when the time comes to find a lender. Saving money teaches one the value of money and the practice of self-restraint. If you have debts, focus on paying off high interest debts first, pay a little more than the minimum balance due and only spend money on the essential items that you need. Paying off loans is paramount if you are to obtain a real estate investment.
Don’t indulge in self-doubt
Never let the fear of failure get in your way. Everyone starts somewhere. Everyone learns as they go. Failure is a part of life and is also a big part of investing. There are always risks involved in life and in investments. Do the research, do your due diligence to help make calculated moves that will help minimize your risk. If you make a mistake, don’t beat yourself up. Instead, learn from the situation and try to improve yourself and your understanding for the next go around. The important thing is to never give up.
“It’s not what you do, it’s who you know.” Have you ever heard of that saying? Getting to know the right people is important. Meeting with real estate agents, contractors and other investors will help you understand the industry and how it works. You will definitely make important contacts along the way so keep your eyes open. When you invest in real estate you should aspire to have a solid team of people who you can rely on. Stay up to date on the market as it can change in a heartbeat.
Follow the numbers
It’s easy to get caught up in making emotional decisions. However, when investing in real estate thinking with your heart and not your head can turn out to be a terrible mistake. A property may look perfect on the surface but may also not be up to standards. Seeking professional advice is always the smart move when it comes to purchasing a property. You will need to find out if the property is worth the money, time and effort. There are plenty of things beneath the surface of a property that may make the investment not worth it. Investments are not about gut feelings, they are about the numbers and if you can net a profit.
The bottom line is this: Pay off outstanding debts, save money, study the market and seek professional advice before getting yourself into a contract. A real estate investment can be one of the best ways to earn income.
"Landlords grow rich in their sleep without working, risking or economizing" – John Stuart Mill
Let's take a look at some if the biggest mistakes that home sellers make when putting their home on the market. These situations happen all the time and should be avoided and any cost.
The biggest mistake that home sellers make is overpricing their home. Sellers don't normally understand that not everyone values their home as much as they do. And that's OK. Seller's should have pride in their home. However, that doesn't mean that it is worth what they believe it is. When the seller sets the price too high there are a number of situations that can occur. For instance, the home can sit on the market for too long and not receive any offers. Bad for someone who needs to sell quick. If your home is on the market for 180 days and it doesn't sell then the market can soften and the seller can lose out on good money because it was priced it too high. The market changes quick and a homes value can either increase or decrease within months. Don't make this mistake!
Sellers will have to be flexible when it comes to selling your home. This means letting people view the home during hours that sellers might not want to show their home. If a serious buyer has an agent pitch them a home on 5 o clock on a Wednesday night and your about to start cooking dinner, sellers should consider letting them view your property. Being available and flexible is key to selling a home quick. The more exposure and people that view a listed home the better chances there are at selling it.
Removing personal items such as pictures, guns, jewelry, weapons is essential to selling a home. These types of items need to be stored away so the home can be properly shown to buyers who are coming in and trying to visualize themselves living in the property. Make sure to clean your home and de-clutter any space that has unnecessary items. The less you have out in the open the more attractive and spacious your home will look, which is a good thing.
Unwilling to Negotiate
Selling a home is a negotiation. There will be some terms that the buyers decide to throw in such as keeping the refrigerator or that they want you to pay for closing costs etc. This doesn't mean that you have to comply with what the buyer writes in an offer. However, you should at least play the field. What that means is you should have a strong agent who is good at negotiation and who can help you get the terms that you want. Simply saying no will not cut it and it will most definitely not get your home sold.
Not everyone is a pet lover. Dogs and cats can leave some pretty stank smells. You wouldn't notice it if you were living in it but a potential buyer will absolutely smell it. It's best to keep pets outside or in the garage. Purchase some air fresheners or some Fabreeze to help alleviate some of those unwanted odors.
Wont Make Repairs
A professional inspection will often reveal items in need of repair that the seller didn’t know about. When that happens, an amendment to the contract requesting that the seller make specific repairs is usually proposed. However, the seller is not obligated to accept the amendment to make repairs. It really depends on what types of repairs need to be made. If the roof is caving in and will fall within months then that is something that the seller will HAVE to repair because no one will purchase that house and if they do it will be at an extremely discounted price considering that the roof will need to be repaired in the very near future.
Teresa Dillon, Broker